Offshore Islands by John Francis Kinsella - HTML preview

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K

avanagh saw the thick form of Phil arriving in the square and made a sign.

“So what’s it like on the run?” laughed Phil.

“I’m used to it!” said Kavanagh forcing a smile. “A bit of a fuck up! Right!”

“You could put it that way, I suppose. But there are positive aspects.”

“What’s the next move then?”

“I suggest you hang around here for a few days. Enjoy your trip to Amsterdam,” then smiling he added as an after thought, “maybe we can go to the Casino!”

That did not surprise Kavanagh for one moment. Phil was an inveterate gambler and the Casino was just a block away along the same canal that bordered the American Hotel.

“The important thing is they don’t find out that you, I mean we, have sold all those shares, because then the shit would really, and I mean really, hit the fan!”

“What are the chances of that happening?”

“I’m sorry to say – pretty fucking high!”

“Shit!”

They dined early in an Indonesian-Chinese restaurant that Kavanagh had earlier spotted, just short walk away on Korte Leidsedwars Straat, off the square. The food and wine were excellent, but in spite of the fabulous wealth they had acquired they were subdued, almost depressed as they tried to work out a game plan for the next days.

Everything depended on how the market would move and its position regarding Swap, whether the government in Dublin could avoid a scandal and the public’s reaction to the media, who as usual were trying to whip up a witch-hunt.

The whole situation was suspended in a delicate balance, which could at any moment violently crash down on their heads if the news came out on how they had cashed-in their shares, which would certainly be interpreted as treason to the market and its investors or even fraud.

The next day Phil left Amsterdam by an early flight leaving Kavanagh to stew, waiting to see how things developed over the following twenty-four hours or so before deciding to return to London or Dublin.

 

I

t was the Sunday Irish Times that launched the hue and cry and led the pack the following morning. It was no wonder that when trading commenced on the Monday morning that the market was dumping shares in Swap.

It was the same press that stampeded investors into the market with the never ending need to fill their financial pages, day in day out, with something to hold its readers, an endless stream of conflicting advice, new era stories, news of business personalities, rising or falling, as proof of their journalist’s two a penny get rich quick theories. The same press, in its desperate need to sell newspapers was prepared to hound just about anybody, even their proclaimed heroes of yesterday, in their daily search for a headline story.

Kavanagh, unaware of the Irish Times’ headlines had moved to the Hilton at Schipol Airport late that Sunday morning, in the hope he could quickly hop on a plane to London the next day if things calmed down.

That Monday morning he tried to contact his partners without success, leaving messages on their voice mails. When Phil finally called Kavanagh back, he informed him that the worse had happened; the shit had hit the fan and suggested that he lay low. He and Jim Carmichael were embattled with the press and were trying to calm the banks and investors. Phil would call him back that evening.

Kavanagh calmly decided he was on his own, he took the train from Schipol to the Amsterdam Centraal Station, where he bought a one way rail ticket for Frankfurt.

The media decreed a general hue and cry and the authorities set the bloodhounds loose hot on the tail of the swindling upstart, for his capture and public pillorying.

In his hotel room at Frankfurt Airport, Kavanagh watched the BBC evening television news with growing dismay. However, he knew he had taken the right decision, he had not been wrong about those who until a couple of days previously had praised and worshipped him.

The announcement the previous Saturday of the failure of the mediation between Microsoft and the Justice Department of the USA was just beginning to have its effects on the markets.

In Washington, a judge, Thomas Penfield Jackson had announced that same Monday morning, just after the opening of Wall Street, that he would render public at 5 o’clock the same afternoon his verdict in the case.

The verdict would be that Microsoft was in violation of the anti-trust laws, guilty of an illegal monopoly and business practices. The judge qualified Microsoft as a ‘predator’ taking advantage of its dominant position as the supplier of the personal computer operating system ‘Windows’ on ninety percent of the world’s personal computers.

The consequences would be either the dismantling of the group, a huge fine running into billions of dollars or severe restrictions on the groups activities, by for example forcing them to publish their technical codes that software companies need to make their programmes function with Windows.

In making his decision the judge wiped billions of dollars from of the global economy driven by the New Technology sector.

The result was that the shares of Microsoft fell over fifteen percent in a single session pulling down in its wake all the shares of the Hi-Tech market. The Nasdaq fell six percent in one day after an eight percent fall in the previous week and twenty percent in one month.

Microsoft shares at their entry into the market on 13 March 1986 had been valued at twenty-one dollars; fourteen years later they were quoted at over 14,000 dollars or an increase of 66,750%. The rights of an original single first issue share transformed it into 144 divisions or shares as a result of successive new issues.

The shares of Cisco, the next most valuable company in the world that vied with Microsoft for the top spot, had entered the market at eighteen dollars were worth 21,435 dollars, a growth of 119,000% in ten years.

Kavanagh could not help mentally calculating the results of the fall in Microsoft’s shares. They were down from the beginning of the year high of around 120 dollars to 106 dollars on the previous Friday, and at that moment were down to 87 dollars.

He calculated that the 15% of the shares in Microsoft that Bill Gates personally owned, had been worth 90 billion dollars on 1st January, then 80 billion on 31 March and now 65 billion, Gates’ fortune was melting like snow in the midday sun, he had lost 14 billion over the weekend alone.

That evening at the Frankfurt Airport Sheraton, Kavanagh eyes were fixed to the Bloomberg News that announced the market had lost another 4.7%, zapping to the DW News he saw Deutsch Telekom had lost over 10% that same day.

Kavanagh had a surging feeling that his actions were justified, he had made the right decision. The crash he had feared was taking form. His decision made, he would leave the hotel for the international airport terminal next morning.

 

  1. Chapter 20. At Castlemains Retreat

Located at the water’s edge on the French side of the island, in a six acre compound overlooking the soft green hills across Simpson Bay, was another of Castlemain’s homes, or retreats as he liked to call them. There he was far from the duties that encumbered him twenty-four hours a day during most of the year. He could reflect on the condition of the world, he could also meet the kind of people he would not like to be seen with in public, they included those who carried out certain unpleasant tasks that had to be taken care of from time to time.

“It was a wreck when I bought it, completely overgrown, when we came to see it with the agent - couldn’t even find the entrance,” he liked to tell visitors.

The house was in a typical wood-frame West Indian style. It was set on a rise; about fifteen metres above the sea, a path sloped gently down to shore, though there was practically no beach, rather a flat narrow rock floor covered with the natural debris that drifted in on the sea. The dense vegetation ran almost to the waters edge, separated only by a raised stone path that led to the wooden jetty that zigged and zagged out to deeper water, where his friends and acquaintances could arrive discretely by boat.

The main entrance was at one end of the rectangular shaped house, on the landside, it was used mainly by the housekeeper and trades people. At the other end was a swimming pool, built onto a terrace that jutted out from the flank of the rise. The pool was kidney shaped, of modest but adequate size, and to one side was a bar decorated with tropical flowering plants. A stairway led up to the bedrooms from the pool area, that opened onto a balcony that ran around the entire house, so that the extraordinary view and perfume of the tropics were never more than an instant away.

Castlemain and his guests mostly used his motor launch to go into town or visit friends, not only was it practical, but it was refreshing and there was a sense of escape during the fifteen or so minutes that were needed to cross the bay. His side of the island was Saint Martin, the French side; the other half was the Dutch side Sint Maarten.

Apart from the immediate vicinity of the house, the vegetation was left almost totally natural, three or four times a year the gardener removed the dead undergrowth to avoid fires and comments of neighbours, who would have preferred a more orderly landscaped view.

Castlemain had chosen rather simple but gay local style furnishings in contrast to the sombre style of his Irish country home. He preferred his Caribbean island retreats to the heavy atmosphere of his family estate in Ireland, which consisted of one thousand six hundred hectares of woodlands and fine farmland that lay in the north of County Meath at the heart of Ireland. The estate was dominated by a great house, built in the latter part of the eighteenth century, its neo-classical stone facade crowned with a blue slate roof, sitting in a dell overlooking a small lake.

There were besides the ballroom, two libraries, twenty-two rooms, kitchens and quarters for the domestics and hired help. The permanent staff of nine persons looked after the every day affairs, but for receptions as many as forty additional staff was necessary, as was the case for their traditional New Year’s ball.

Castlemain employed an estate manager as well as a permanent secretary resident at Castlemain House who looked after his personal and family affairs.

Not only did David Castlemain enjoy the leisure of life that his position gave him, he expected respect from those around him, he felt it was due. His awareness of the social position of his family had been transmitted to him by past generations, in spite of his affable good manners he tolerated no truck from such upstarts as Kennedy, whom he saw merely as a useful hands to execute his instructions.

He was the decider, he was in control and above all it was he who took the credits and rewards, wherever they came from. In short he was nothing less than the seigneur exercising his hereditary rights. As time passed and his financial power extended from Ireland to England, the Continent and beyond, he slowly but surely became authoritarian and autocratic. The power to bestow his favours through his bank fed his obsession and desire for power and position.

His strict upbringing had given him the taste for the adventure and excitement that he later experienced in South America. Since his father’s death, his obligation to duty in the staid world of banking left him yearning for escape from the boredom of his stifling Dublin business environment. He was born into wealth, it was a natural condition to him and as the heads of previous generations of his family he had never known anything different.

He carefully balanced serious business interests with a careful dose of exoticism, new business ventures, the Caribbean with his yacht, his unusual and sometimes doubtful friends. He liked taking personal risks that made the adrenaline flow, but he took care not endanger his long-term business interests.

He was not blind to the source of certain funds that flowed through the banks that his family owned in the Caymans and Antigua. He, as a respectable member of the banking community, controlled his interests through a maze of trusts and holding companies that cascaded through the secrecy of Switzerland, Monaco and Liechtenstein.

As for other old wealthy banking families the rules had been established over generations in the thickly carpeted offices of the banking establishment in the City of London, where a different set of rules applied to the rich.

Castlemain was intolerant of those who tried to upstage him, he was the one who thought and decided, all those in his service were there to implement his ideas and execute his instructions. Those who bucked the rules quickly found themselves on the street, with little hope of ever finding employment in another banking establishment.

 

  1. Chapter 21. The Money Rolls In

The value of Swap shares rocketed through the stratosphere in a space of six months, from an initial pricing in punts, or Irish pounds, of I£10 to I£12,000, with Kavanagh still holding over twenty percent of the shares in the company.

The initial capital of the company at its foundation had been I£1000 divided into 100 shares. Kavanagh had held 50%, Castlemain 20% with Jim Carmichael and Phil Moftan holding 15% each.

After three months the owners, seizing the opportunity in a booming market for Hi-Tech stocks, took the decision to increase the capital to I£3 million by the issue of 600,000 new shares, of which 400,000 were to be subscribed to immediately at an initial price of I£10 per share, half of those being reserved for the existing shareholders and the other half being offered to the market, they were snapped up on the first day of trading. All the shares were tradable on the markets.

The founders paid into Swap cheques equal to the value of their new shares, with monies advanced by a loan facility from the Irish Union Bank. At the end of the first week of trading the value of the shares had had increased from I£10 to £200. The owners then sold shares onto the market for a sum equal to that of their loans from the Irish Union, they then repaid their loans together with interest calculated at an annual rate of 8% for a total period of ten days.

Kavanagh sold 10,000 shares for I£2 million and paid back the advance to the bank plus the interest of about I£5,000 and pocketed I£995,000. In only ten breath-taking days he had made a paper profit of almost I£19,000,000 based on the value of the 90,000 shares he still held.

The other three partners carried out the same operation. The company had already reached a market value of I£80 million and then continued to surge ahead by leaps and bounds at a dizzying speed, driven by the blind speculation of the punters. That had been merely the start and in the months that followed the shares again multiplied by almost twenty times.

The value of Kavanagh’s shares made, an already fairly wealthy man, on paper that is, the owner of a great fortune; greater than almost any other person in the Republic, he was a billionaire in Irish Punts.

The 200,000 shares that the company had initially sold to the market had brought in a mere couple of million Irish Punts at the offering price, which were peanuts compared to their subsequent value. The directors then took the decision to take advantage of the rise in the market value of the shares and the frenzy with which the punters were throwing money at Hi-Tech stocks. They sold to the market the remaining 200,000 non-subscribed shares, thus creating a large capital reserve, which would keep the company in cash if the going got bad.

He with his partners had become ‘dot-com’ multi-millionaires, like another couple of hundred or so fortunate players around the world, from Hong Kong to India and from London to New York and San Francisco.

How many of them would keep their fortune was another question. It was not the first time fortunes had been made by speculation or break-throughs in new technologies. From the South Sea Bubble to Railways, from Steel to Automobiles, both lucky and daring men had become immensely rich overnight, many to lose their fortune almost immediately.

Kavanagh’s previous brushes with disaster and misfortune had made him a very cautious man under all the brouhaha that surrounded his rise to instant fame and the delirious state of the stock market. He had become a national celebrity, recognised in the streets of Dublin by passers-by, he was invited to talk shows and to press interviews.

As a celebrity in a small country his every move was under the scrutiny of the media. The readers of the press wanted to know more about this new Irish hero. Who was Sean Kavanagh? Where did he come from? What was his trick? His beginnings with the NIB were been held up as an example for would-be-investors in Ireland and its booming Celtic Tiger economy.

 

  1. Chapter 22. A Different Vision

Raul Cienfuegos was a member of the elite close circle of military men that surrounded Fidel Castro. They watched over his security and maintained the image of the manly Spartan world of a revolutionary. He was not of the same generation of Castro, but he carried the name of Camilo Cienfuegos one of the three heroes of the Revolution together with Che Guevara and Fidel Castro. Camilo Cienfuegos had been killed in a plane crash in October 1959.

Fidel Castro was the godfather of Raul Cienfuegos and had decided on a military career for the young Raul after his uncle’s untimely death. It was the duty of the revolution to care for the families of the people’s heroes.

That night when Castro had received Castlemain in Havana, Cienfuegos had been present. He did not have the same vision of the future as that of his godfather. He had tasted the rotten fruit of the Revolution, the corruption and despair that enveloped it. A monument to such a failure was an insult to the suffering of the Cuban people who had endured the grinding poverty of four decades, in a system that reeked of destitution and was falling apart at its seams.

In spite of that, Raul Cienfuegos admired El Jefe, he was a living legend, and maybe history had failed him. But time had worked its relentless machine and Fidel Castro’s last hour was approaching. The flag would be passed on, that was the way it was and always would be. Men like Jose Martti and Manuel de Cespedes had risen to carry the banner of their country, Fidel Castro was another giant and soon it would be the turn of a new flag bearer, Raul Cienfuegos believed he was that person, it was his destiny.

Cuba desperately needed a new leader for its reconstruction, for the future of the people, but not useless monuments to glorify his godfather’s failure.

Cienfuegos had a different vision, the vision of a new Pinochet, where a determined military man could rebuild a strong and vibrant economy, such as that of Chile. But Cuba was an eternal slave to sugar with the mentality that two generations of communism had bred. Cienfuegos needed capital and he was not prepared to exchange the misery of communism for an impoverished military dictatorship.

Carlos Ortega shared certain of his ideas and offered him his support with the money and power he controlled, to build a new Cuba, without the bitter old men from Florida nursing their old grudges from a bygone era.

New cities would be built, but according to his plans and not that of a dead ideology.

Raul Cienfuegos vowed that Ciudad ‘Castlemain’ would never be completed by that foolish Irishman, let alone be named after him, he would bide his time until the moment was ripe.

 

  1. Chapter 23. The New Economy

Jim Carmichael’s business in the UK grew quickly, profiting from the subsidised services of Sean Kavanagh’s Irish firm, Investec. The Irish firm concentrated on developing its home market with new customers, mainly banks and insurance companies.

Among those customers was the Irish Union Bank, which had merged with the Anglo-Cooperative Bank, a group of regional banks in the North of England. Both banks had European aspirations but lacked competitive size. The new group was named the Anglo-Irish Union Bank.

The Chairman of Anglo-Irish Union was David Castlemain, who had engineered the merger and pursued the growth of the group, forging links with the French BCN, selling them a ten percent share of the new group, gaining access to their extensive European network.

Within four years Investec’s sales had grown to over I£8 million, producing a modest profit. Investec was then launched with a great publicity campaign onto the Dublin new companies stock exchange. Castlemain’s bank took a thirty percent stake in the company, seeing a strong growth potential with the development of the Internet.

The bank raised capital and encouraged the company to spread its wings. Investec had commenced the development of applications for mobile telephones and Internet services, technologies that would enable the mobile telephone to access Internet services. Further into the future it would be possible to see the correspondent at the other end of the line, watch movies and music videos in high quality colour images. A fabulous market.

At the outset the new technologies were of no great interest to the general public, who saw them more as the distant dreams of specialists. But the phenomenal growth of mobile telephone exceeded all forecasts and the Internet exploded into the domain of the general public.

Castlemain, who followed closely the markets in the USA, and take-off of the Nasdaq New Technologies stocks, decided together with Kavanagh the moment was right to float a new start-up. The shares would be traded on the Dublin Exchange and the Alternative Investment Market in London.

His ambition was to equip the Irish Union Bank with an Internet capability, to provide its customers with Internet banking, so that any one of them at any time in any place could get instantaneous access to their accounts and the bank’s services. Users could carry out transactions, from paying a restaurant bill to renting a car, or, even buying shares and transferring money from their accounts to any connected location in the world.

The stampede into the new company, baptised, Shannon Wireless Applications Protocol, otherwise known as Swap, was unforeseeable and astonishing. The frenzy followed the same New Technology Internet related phenomena in the USA, the UK and continental Europe.

The so-called New Economy was on the march and nobody but nobody wanted to miss out on the chance to make a killing on the stock market in new technology stocks.

 

  1. Chapter 24. Ciscap Limited

Castlemain adroitly left the task of drawing up the legal documents incorporating CISCAP Construction & Development, as a limited company under Irish law, to Pat Kennedy. The capital was one hundred thousand Irish punts, although at that precise moment only one hundred had been paid in. The object of the company according to its articles of association was to provide overseas consulting services for the development of the tourist industry as well as undertake any other kind of business decided by its directors.

Irish company law was very accommodating regarding private companies. Their owners and directors had a very large latitude in determining the development of the business, provided that they filed their tax returns on time, and keep the registrar of companies in Dublin informed of all official decisions and changes that the directors were obliged to register.

The directors of the company included Pat Kennedy, Tony Arrowsmith and David Castlemain’s wife Nancy. The registered offices were established at Kennedy’s business address in Limerick City, whilst they awaited approval from the National Investment Board for their financial participation.

A feasibility project had been submitted to the Investment Board that described in generous terms the objectives of the new company, which included; consulting services for the creation of new hotels and tourist centres, management and training as well as financial services.

The base for income calculations was the contract from the future Ciudad Cayo Saetia Development Consortium, which over a five-year period would bring almost fifteen million Irish pounds into the company and create fifty new jobs in the Shannon area. In addition the feasibility analysis foresaw that the company would endeavour to place Irish made equipment and materials in the projects to be developed, thus providing further employment and business prospects for the country.

There was no doubt that Kennedy had prepared a first class application. He knew exactly how the NIB functioned and what was needed to obtain their approval. Arrowsmith provided the technical data, based on the information that had been supplied from Cuba and financial calculations by Castlemain’s specialists.

The feasibility had calculated a budget of eight hundred thousand pounds the first year, covering office facilities, salaries and expenses. The second year would require two million and for each of the three following years four million pounds. Those estimates could be recalculated upwards if the business justified additional funds.

What was important in the calculations was the participation of the NIB in the form of cash grants, which could be as much as one hundred percent of the estimated funds needed for certain items but never less that fifty percent.

Kennedy had calculated total grants of I£7 million over the five-year period, if the NIB accepted the total package, that was a minimum, and there was relatively little doubt that they would approve the project on the basis of the backing from the Irish Union Bank, who would participate in cash and loans to cover all the needs.

It was just after ten in the morning as they drove to Kennedy’s office in the driving rain, typical of the West of Ireland. It was the third Tuesday of the month and as normal at the NIB, the investment committee met at ten to recommend for approval any new investments. Mulligan had promised to call Kennedy, just as soon as the meeting broke up, normally before midday, to inform him of the committee’s decision.

Arrowsmith left Kennedy to get on with his business and passed his time drinking coffee and flipping through the newspapers in the meeting room. In his mind he went over his position, it was not at all critical to his future whether the project was approved or not, but over the six months leading up to that moment he had let himself become involved to a much greater degree than he could have imagined on his first visit to Kennedy in Limerick. He had put a considerable amount of effort into the project and it had become a challenge and even a matter of personal pride.

Arrowsmith looked at his watch, it was just after twelve, he stood up and went into the secretary’s office. She looked at him regretfully.

“No news yet Mr Arrowsmith,” she announced.

“Anybody with Pat?”

“No.”

He ope